exercise 9-7

problem 9-2

TO 11 12 E9-7 (Relative Sales Value Method) Phil Collins Realty Corporation purchased a tract of unimproved land for $55,000 This land was improved and subdivided into building lots at an additional cost of $34,460 These building lots were all of the same size but owing to differences in location were offered for sale at different prices as follows. Group No. of Lots Price per Lot 1 9 $3.000 2 15 $4.000 3 17 $2,400 15 16 $18,200 Lots unsold at the year-end 17 Operating expenses for the year allocated to this project total as follows Group No. of Lots 18 7 2 3 19 20 21 22 23 24 25 26 Instructions: At the end of the fiscal year Phil Collins Realty Corporation instructs you to arrive at the net income realized on this operation to date pnce as % 27 per lot Group No. of lots Number Number Number Relative Sales price Total sales sales pnce Amount Amount Formula Amount Amount Formula Amount Amount Formula Formula Formula Cost allocated Cost total to lots Cost per lot Amount Formula Formula Amount Formula Formula Amount Formula Formula Formula 28 29 30 31 132 33 2 Lots Sold structions Exercise 9.7 Problem 10 11 12 13 14 15 16 17 18 P9-2 (Lower-of-Cost-or-Market) Garcia Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes in northern New Jersey and southern New York. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2014, and Jim Alcide, controller for Garcia, has gathered the following data concerning inventory At May 31, 2014, the balance in Garcia's Raw Matenal Inventory account was $408,000 and the Allowance to Reduce Inventory to Market had a credit balance of $27,500 Alcide summarized the relevant inventory cost and market data at May 31, 2014, in the schedule below. Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Garcia's May 31, 2014, financial statements for inventory under the lower-of-cost-or-market rule as applied to each item in inventory. Devereaux expressed concern over departing from the cost principle. 19 20 Aluminum siding Cedar shake siding Louvered glass doors Thermal windows Total Cost $70,000 86,000 112.000 140,000 $408.000 Replacement Cost $62,500 79,400 124 000 126,000 $391.900 Sales Price $64.000 94 000 186.400 154,800 $499,200 Net Realizable Value $56,000 84 800 168,300 140.000 $449 100 Normal Profit $5,100 7,400 18,500 15,400 $46,400 21 22 23 24 25 26 27 28 29 30 Instructions: (a) (1) Determine the proper balance in the Allowance to Reduce Inventory to Market at May 31, 2014 Calculations of Proper Balance on the Allowance to Reduce Inventory to Market At May 31, 2014 NRV less Replacement NRY normal profit Cost Cost (Ceiling) Floor) Amount Amount Amount Amount Exercise Problem 9.2 LCM Amount Aluminum siding structions B Aluminum siding Cedar shake siding Louvered glass doors Thermal windows Totals Amount Amount Amount Amount Formula D Amount Amount Amount Amount Formula Amount Amount Amount Amount Formula Amount Amount Amount Amount Formula Amount Amount Amount Amount Formula 32 33 34 35 36 37 38 39 40 41 42 43 Inventory cost LCM valuation Allowance at May 31, 2014 Amount Amount Formula (a) (2) For the fiscal year ended May 31, 2014, determine the amount of the gain or loss that would be recorded due to the change in the Allowance to Reduce Inventory to Market. Enter text answer here as appropnate 45 46 47 48 49 Balance prior to adjustment Required balance Loss to be recorded Amount Amount Formula 50 (b) Explain the rationale for the use of the lower of cost or market rule as it applies to inventories Enter text answer here as appropriate 52 53 54 55 56 57 58 159 60 Enter text answer here as appropriate